Regulating and restricting private money lenders

The Supreme Court has come up with a set of draft regulations on regulating private money lending based on the Financial Services Act which says that money lending has to be regulated. The regulations were in the works for the last few months.

The draft regulations are being handed over to the Royal Monetary Authority which will study it and come up with the final regulations.

One key part of the draft is that private money lenders have to be licensed by the Royal Monetary Authority (RMA). Currently no private money lender is licensed or regulated.

One key point of the draft is that it sets a minimum and maximum loan amount below and above which money cannot be lent by the licensed private money lenders.

The minimum amount proposed as of now has been set at around two year minimum wage which currently comes to around Nu 109,500. The proposed maximum amount is 10 year minimum wage which would come around Nu 500,000. If the licensed private money lenders lends anything below or above this then the courts will not entertain their cases. Since it is a draft the amount could be subject to change.

The courts will also not entertain unlicensed private money lenders. However, this would apply only retroactively from a certain date before which all money lending would be dealt as per the laws and practices at the time.

One check and balance in the regulation is that the moneylender cannot lend more money to the same person unless 75 percent of the original loan has been paid back already.

This section combined with the maximum loan limit is to prevent the monthly compounding of interest rates currently practiced by moneylenders where a small amount balloons up.

An official from the Judiciary said that it is not feasible to currently stop all private money lending as some people in the villages depend on such funds. He also said that the Moveable and Immoveable Property Act under section 17 says… “No lender other than a registered financial institution which has been duly licensed to engage in the extension of credit may charge interest greater than 15 percent per annum expressed as a simple annual rate.” He said this implies that others can lend at up to 15 percent interest and only registered financial institutions can charge above it.

Check Also

Gyem Gyeltshen sues Druk Air for death of his wife and daughter

Friday morning, Gyem Gyeltshen’s legal representative, Karma Tshering,  filed a legal suit in the Thimphu …

Leave a Reply

Your email address will not be published. Required fields are marked *